Understanding ETFs
An exchange traded fund is a regulated fund whose shares trade on an exchange like a stock. Our name borrows the idea of theme-based baskets. This page explains what a real ETF is, and why $FRANKLINETF is not one.
E
Exchange
ETF shares are listed on regulated stock exchanges and can be bought through a broker.
T
Traded
Shares trade throughout the day at market prices, much like shares of a single company.
F
Fund
Each share represents a slice of a portfolio of securities held by the fund.
How Are ETFs Different?
General comparison
| ETFs | Stocks | Mutual Funds | $FRANKLINETF | |
|---|---|---|---|---|
| Trades during market hours | ||||
| Holds a basket of assets | ||||
| Regulated as an investment product | ||||
| Holdings disclosed regularly | ||||
| Gives a claim on underlying assets | ||||
| Settles on a public blockchain |
General information only; individual products vary. $FRANKLINETF is a crypto token: it does not hold the baskets described on this site and is not regulated as a fund.
Typical cost structure
| ETFs | Stocks | Mutual Funds | $FRANKLINETF | |
|---|---|---|---|---|
| Management fee | ||||
| Brokerage or exchange fee | ||||
| Network gas | ||||
| Sales load |
What Makes ETFs Popular?
A single trade can give exposure to a whole basket of securities. People usually point to five reasons.
Liquidity
Shares trade on an exchange during the day, and new shares can be created or redeemed to meet demand.
Transparency
Many ETFs publish their holdings frequently, so buyers can see what they own.
Diversification
One share can hold dozens or hundreds of securities instead of one.
Tax Treatment
In some jurisdictions the creation and redemption process can reduce taxable distributions.
Low Cost
Many index ETFs charge lower annual fees than comparable actively managed funds.
How Do ETF Shares Get Created?
Large institutions called authorised participants swap baskets of securities for new ETF shares, and back again. That keeps the share price close to the value of the holdings.
- 1. The provider publishes the basket of securities it will accept.
- 2. An authorised participant delivers that basket and receives a block of new ETF shares.
- 3. The participant sells those shares on the exchange at market prices.
- 4. Investors buy and sell the shares with each other through their brokers.
Active vs. Index, And Where Franklin Fits
Active
A manager chooses holdings based on research, aiming to beat or differ from a benchmark.
Index
Holdings follow a published index rule, so the fund tracks a benchmark instead of trying to beat it.
Franklin ETF
A community token that publishes thematic and index-style basket designs. It borrows the ETF idea for its research, but it is not a fund, it is not listed on a stock exchange and it is not regulated as one.